One question forex traders ask is, what is a bullish order block?
Today with the availability of advanced market tools and a good trading experience, retail traders can take advantage of trading opportunities in both bullish and bearish order blocks when they are formed.
Order blocks play a crucial role in determining the market dominant trend; they are formed as a result of the activities of banks and big financial institutions.
It is important that to effectively trade order blocks you must first learn how to identify them.
RELATED: BULLISH ORDER BLOCK INDICATOR
HOW CAN YOU TELL A BULLISH ORDER BLOCK
A Bullish order block can be seen both on a bullish trend continuation or a market reversal.
To tell a bullish order block; these are the pointers to look out for.
- Market consolidations
- Multiple price rejections
See the image below.
WHAT IS A BULLISH ORDER BLOCK?
A bullish order block is simply an aggregation of buy orders from major financial institutions that causes price consolidations and higher highs, signaling an upward trend.
HOW DO ORDER BLOCKS WORK?
In forex, banks utilize order blocks to break up large orders into smaller ones so they can be filled at better prices without upsetting the balance of the market.
Retail traders can take advantage of these order blocks; looking out for trading opportunities at the break out of the order block structure.
Order blocks work best on higher timeframes when they are formed; they determine the dominant trend of the market.
A narrow-range consolidation results from the banks’ placement of positions around comparable prices; each position establishes a peak (or low, if they’re shorting), of the consolidation.
WHAT ARE THE TYPES OF ORDER BLOCKS?
There are two types of order blocks
Bullish order block and Bearish order block
BULLISH ORDER BLOCK
When an up-trending impulsive wave develops after breaching a range-bound market structure or block, a bullish order block has formed.
BEARISH ORDER BLOCK
A bearish order block is formed when the price breaks the range and consolidation of a bearish trend; it is best seen on higher timeframes.
See the image below.
WHAT IS ORDER BLOCK IN FOREX
Order block is a market activity characterized by the accumulation of orders by large firms. Order blocks take time to form in the forex market; they are stronger on higher timeframes.
Order blocks can also be seen as supply and demand zones; Utilizing order blocks, you can trade the breakout setups.
When a strong trend comes to an end, order blocks—which can be either bullish or bearish—can be identified by identifying the low or high as well as the swing high or swing low, respectively.
ORDER BLOCK TRADING STRATEGY
Order block trading strategy can be very effective when used properly.
In an order block trading strategy our focus timeframe will be on the higher timeframe as this is where you will find valid consolidations and accumulation of institutional orders.
For market entry on order block trading strategy; we place a trade on the breakout of the order block structure.
See the image below.
INSTITUTIONAL ORDER BLOCK
Finding order blocks on the chart is essential before understanding how to employ them in your trading plan.
After a market consolidation, order blocks are typically seen in larger time frames because they are the outcome of big institutions’ and banks’ movements. For this reason, order block candles often have a larger diameter than the consolidation zone.
Institutional traders never trade in small amounts, in contrast to retail traders. They must therefore carefully consider how to arrange their course of action.
To get the best trading results, they would spend a lot of money merely studying the market. They must overcome a different challenge than typical traders to execute such a large order.
Additionally, keep in mind that there needs to be an equivalent sell order on the other side of every buy order.
Due to the size of their orders, institutional traders may encounter challenges while looking for a counterparty to fill their order requests.
Banks and other financial organizations typically divide their orders into smaller trades and carry them out in stages.
BEARISH ORDER BLOCK
Bearish order block shoes market consolidations and accumulation on a downtrend; at the break of the order block is a sell signal.
CONCLUSION
Order blocks are crucial in forex trading since banks and big institutions are participating, and all a retail trader needs to do to participate is to jump in when the order block structure is broken.